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Fiscal Policy in New EU Member States – Go East, Prudent Man!

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  • Ondrej Schneider
  • Jan Zápal

Abstract

The European Union (EU) accepted ten new member states (NMS) in 2004. These countries, mostly former socialist countries, have had to adjust their economic policies to the EU’s standards. Perhaps most difficult has proven to be fiscal policy whereby NMS must comply with the Stability and Growth Pact (SGP) rules. Indeed, six out of the ten NMS have breached the SGP limits and were put in Excessive Deficit Procedure (EDP). While the SGP is being modified, fiscal policy is set to remain on the agenda for all NMS in years to come. In this paper, we analyze fiscal policy in the NMS, focusing primarily on the time period that immediately preceded their EU accession. We analyse the structure and scale of these countries’ fiscal policy and identify main trends in revenues and expenditures of their public budgets. We then explore dynamics of fiscal policy in the new member states and isolate main factors of the dynamics. Namely, we show how much of the consolidations was due to the fiscal authorities’ effort and how much was caused by external factors. We also show that most NMS governments have run a rather inconsistent fiscal policy and have not consolidated their budgets appropriately by postponing politically difficult consolidation measures. However, we also identify a group of countries characterised by strong reform efforts and responsible fiscal policy-making, supported usually by strong economic growth. In this context, room is given to economic, as well as political economy factors.

Suggested Citation

  • Ondrej Schneider & Jan Zápal, 2005. "Fiscal Policy in New EU Member States – Go East, Prudent Man!," CESifo Working Paper Series 1486, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1486
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    References listed on IDEAS

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    1. C. John McDermott & Robert F. Wescott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 725-753, December.
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    Cited by:

    1. Martin Gonzalez Eiras & Dirk Niepelt, 2004. "Sustaining Social Security," Working Papers 72, Universidad de San Andres, Departamento de Economia, revised Jun 2004.
    2. Bettina Fincke & Marcin Wolski, 2016. "Are European fiscal rules that bad? Discretionary fiscal policies in New Member States," Empirical Economics, Springer, vol. 51(2), pages 517-546, September.
    3. Matthieu Llorca & Srdjan Redzepagic, 2008. "Debt sustainability in the EU New Member States: empirical evidence from a panel of eight Central and East European countries," Post-Communist Economies, Taylor & Francis Journals, vol. 20(2), pages 159-172.
    4. Srđan Redžepagić & Matthieu Llorca, 2007. "Does Politics Matter in the Conduct of Fiscal Policy? Political Determinants of the Fiscal Sustainability: Evidence from Seven Individual Central and Eastern European Countries (CEEC)," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 54(4), pages 489-500, December.

    More about this item

    Keywords

    fiscal policy; new member states; consolidations; Stability and Growth Pact; Excessive Deficit Procedure; growth accounting; probit analysis;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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